Freddie Mac 2015 Annual Report Download - page 151

Management's Discussion and Analysis Liquidity and Capital Resources | Liquidity Management Framework
Freddie Mac 2015 Form 10-K 149
LIQUIDITY MANAGEMENT FRAMEWORK
We believe that the support provided by Treasury pursuant to the Purchase Agreement currently enables
us to maintain our access to the debt markets and to have adequate liquidity to conduct our normal
business activities. However, the costs and availability of our debt funding could vary for a number of
reasons, including the uncertainty about the future of the GSEs and any future downgrades in our credit
ratings or the credit ratings of the U.S. government.
We make extensive use of the Federal Reserve's payment system in our business activities. The Federal
Reserve requires that we fully fund our accounts at the Federal Reserve Bank of New York to the extent
necessary to cover cash payments on our debt and mortgage-related securities each day, before the
Federal Reserve Bank of New York, acting as our fiscal agent, will initiate such payments. Although we
seek to maintain sufficient intraday liquidity to fund our activities through the Federal Reserve's payment
system, we have limited access to cash once the debt markets are closed for the day. Insufficient cash
may cause our account to be overdrawn, potentially resulting in penalties and reputational harm.
Maintaining sufficient liquidity is of primary importance to, and a cost of, our business. Under our liquidity
management practices and policies, we:
• Manage intraday cash needs and provide for the contingency of an unexpected cash demand;
• Maintain cash and non-mortgage investments to enable us to meet ongoing cash obligations for a
limited period of time, assuming no access to unsecured debt markets;
• Maintain unencumbered securities with a value greater than or equal to the largest projected daily
cash shortfall for an extended period of time, assuming no access to unsecured debt markets; and
• Manage the maturity of our unsecured debt based on our asset profile.
To facilitate cash management, we forecast cash outflows and inflows using assumptions and models.
These forecasts help us to manage our liabilities with respect to the timing of our cash flows. Differences
between actual and forecasted cash flows have resulted in higher costs from issuing a higher amount of
debt than needed or unexpectedly needing to issue debt, and may do so in the future. Differences
between actual and forecasted cash flows also could result in an overdraw of our account at the Federal
Reserve Bank of New York. We maintain daily cash reserves to manage this risk.